So America’s greatest investor and economic cheerleader, Warren Buffet, discussed his annual investment outlook recently for 2011. This included, among other things, a recovery of the housing market during this calendar year (noted). But it got me wondering about his interest in sustainability, particularly as it relates to his already mythic influence in the world of business and investing.
I’ve mentioned Mr. Buffet in the past in regards to his company’s previous holding of Petro China stock, a company that has been doing aggressive business in Sudan. Nothing illegal was happening as indirect investment by American individuals or companies in Sudan (and other countries under economic sanctions) is acceptable. However, although he said they cashed out due to profit taking measures, it was more likely due to outside pressure. Around that same time (2007), Buffet stated that he would not rate his company or company’s he owns based on environmental, social and governance factors (ESG) and would not consider these issues when investing.
Is this a case of Buffet just being old and outdated? I think it’s a valid question as he is a man who’s done business in the US since the early 50’s and is well into his 80’s. However, he has donated a ton of his fortune to working on international development issues, which one might have to credit as being at least somewhat progressive.
Buffet’s company Berkshire Hathaway is mildly confusing (not to mention has one of the worst looking websites of all time…I guess he is pretty frugal). It is a large company that owns other companies, primarily in insurance but also in manufacturing, retail, building products and energy to name a few (the website lists about 50 subsidiaries). It also invests significantly in other companies where it may have a minority stake. With that being said, Berkshire Hathaway has never issued any type of sustainability report and as of 2010 only one of its subsidiaries has produced a formal report (Shaw Floors). In fact, you will not find the word sustainability in his 2010 letter to shareholders.
So my question is this. For someone who is known to be so thorough and meticulous in pouring over financial data for various investment purposes, why would Warren Buffet dismiss, out of hand, ESG considerations? We know these indicators are often difficult to tie to financial performance, but there’s absolutely no reason why they should be overlooked, especially with the amount of money he moves around. Considering there are still plenty of investors (and the media) who hang on his every word, he’d be a great mouthpiece for corporate responsibility. After all, his constant dialogue addressing how strong the American economy has been and will be (backed up by recent relevant investments) may have had more to do with propping up the failing US economy than the actions of American policy makers.
Image Credit by Ngoc Nhan via Flickr under a CC license
Environmental or energy sustainability means nothing if the cost is greater than the benefit. The ultimate measure of sustainability is market driven economics. Buffet’s focus is all about economic sustainability on a long term basis — he refers to it as “value”.